Oil Falls on Fundamentals, Bears Return to Market

The market experienced a second day of retreat Monday, with the price of crude oil falling on the New York Mercantile Exchange to close just below $67 a barrel.

While prices started to fall Friday, settling at $69.55 a barrel, Monday's trading saw oil slip even lower, based on bearish fundamentals and waning hope that the global economic situation is healing.

Detracting investors in crude oil, the US dollar strengthened against other currencies today. Additionally, the World Bank released information that the world economic recession may be steeper than previously thought, raising concerns about demand for oil and natural gas.

"We've still got these bearish underlying fundamentals in the market," said Darin Newsom, senior analyst with DTN in Omaha, Nebraska. "Those haven't changed. They ebb and flow a bit, but overall, crude oil and natural gas all remain bearish."

Crude oil for July delivery settled at $66.93 Monday on the NYMEX. The July delivery contract expires today. The price of crude for August delivery fell, as well, settling at $67.50. Natural gas closed today at $3.933 for July deliveries and $4.071 for August deliveries.

"So important to these commodity markets is what the Dow Jones and the dollar are doing," explained Newsom. "Today, the Dow Jones is under a lot of pressure. The dollar's rallying. These are all signs that this US economy, that so many people have tried to build up as finally having been cured, as becoming stronger, is not there yet."

Aligning with the bearish fundamentals, Newsom explained that prices have retreated in the short-term in an effort to rise again for the long-term.

"We need to come back down before we can go up longer term, and I think that there's some of that reality seeping into the market today," he said.

Adding that natural gas has been a market from which traders are shying away, Newsom reports that buyers are "comfortable" staying short on natural gas.

"When you get these false signs of hope that natural gas might be trying to turn a corner without the support of the underlying fundamentals, and then there's still plenty of natural gas around, when you start to see these sell offs based on the non-commercial liquidations, you can see some very extended losses in the natural gas markets."